Financial Accounting For Dummies

Chapter 20

Reporting Changes in Methods and the Correction of Errors

In This Chapter

Deciding on accounting principle alternatives

Changing the way a company does its guesswork

Correcting mistakes

Nobody is perfect. Regardless of how hard financial accountants try to get everything just right, occasionally mistakes are made or notions about the best way to handle transactions change. Maybe someone simply enters an accounting transaction incorrectly (such as by transposing two numbers — entering $989,000 instead of $899,000). Or maybe a company has been using a particular accounting method for years, but that method no longer provides the most accurate financial statement results.

This chapter explains how to deal with changes in the accounting principles a company follows (and the accounting methods it uses to apply those principles), changes in accounting estimates (a company’s best guesses about how future accounting transactions will play out), and flat-out mistakes.

Coping with Accounting Changes

Sometimes the financial accounting staff at a business will be sailing along doing their jobs when the whole transactional process comes to a screeching halt because the old way of ...